A price is defined as the amount of money that has to be given up in exchange for a certain quantity of goods or services. Prices have always been an important issue to consumers. In recent years however, since the rise of the internet, the importance of prices has changed significantly. While price information used to be limited geographically, consumers are now subject to almost complete price transparency. It is now common for consumers to go to a store, pick something out and then compare prices on their Smartphone before making a purchase.
On a national level, price changes are observed with the help of price indices. These indices are usually compiled based on a fixed bundle of goods and services and enable us to track price changes over time. The most important price indices in the United States are the Consumer Price Index (CPI) and the Producer Price Index (PPI). Both are regularly published by the Bureau of Labor Statistics and followed closely by the broad public.
The CPI is of particular interest because it is the prime measure of inflation in the U.S. and as such influences financial decisions on all levels. Although the PPI receives less attention, it is not necessarily less relevant to consumers. Afterall, changes in producer prices often ultimately cause a change in consumer prices as well. A prime example of this mechanism is the oil price. Subject to high volatility, the price of oil influences costs across all stages of the production process and consequently alters the price of consumer goods as well.
Perhaps the most closely observed price, next to oil, is the price of gold. Gold is not subject to inflation and other external influences and is hence a popular store of value in times of economic uncertainty. During the global financial crisis in 2008, many investors shifted their wealth to gold and, as a result, the gold price has soared to unknown heights.
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